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Sunday, November 08, 2009

Blogging CM Emily Evans explains how Metro funds are likely to be used when convention center construction goes over budget:

Since state law prohibits the direct use of property taxes and the administration has promised not to use sales taxes, the part of the general fund being targeted [by Goldman Sachs in a proposal to back up the convention center budget] are what we call "non-tax revenues."

Non-tax revenues make up about 9% of total revenue for Metro. It is collected from builders and developers in the form of permit fees. From homeowners in the form of alarm registration fees and fines levied for all sorts of stuff. We use the money for general government operations like fire, police, codes, zoning, etc ....

If all the existing and prospective taxes are going to pay for the convention center, how will the hotel be funded? At the meeting in September, Goldman all but ruled out private capital. The most skin Marriott/Phelps Portman appears willing to put in the game is about $10 million in "key money." Is the plan to get Nashville pregnant with a convention center so we have to approved a hotel that is supported mostly or entirely by the general fund? That was the plan in Knoxville. Voters caught on and took it to a referendum and won. But the prospective revenues presume a 1,000 room HQ hotel. Who will buy the convention center bonds with such a big missing piece?....

Because there is likely to be a general fund pledge for the majority of this project, the professional bond investors are not going to care what the projections are. They know Nashville's credit is good and they will look to that to pay them if the project hits the skids. So, the projections are really more a political tool than a financing tool. The projections are to make elected officials feel like they can vote for the project because the professionals have assured them everything will be fine. If it turns out everything is not fine, elected officials can then blame the professionals for their poor projections.

Without a general fund pledge, the checks and balances of the market work much better. The professional bond investors would then carefully scrutinize the projections, do their own analysis and decide if the investment was sound.